Tables and charts about the virtual bank backers
On May 9, the Hong Kong Monetary Authority (HKMA) granted 4 more virtual bank licenses to Ant SME Services, Infinium, Insight Fintech and PingAn OneConnect. These virtual banks, like the ones licensed previously, did not just come from nowhere, but were all backed by big names in different sectors.
The table above summarises the virtual bank landscape in terms of their backers. We will further learn more about some of these backers — particularly in Banking, Insurance, and Retail sector.
Banking
In terms of both deposits and personal loans, the order is Bank of China > Standard Chartered > ICBC. Note that we are considering the “Hong Kong branch” of those banks.
ICBC, despite being the largest bank in the world measured by assets, has a relatively smaller footprint in Hong Kong.
Virtual banks are not required to have physical branches, which could potentially reduce the banks’ premises(rent) and equipment expenses. Heavy utilisation of technology and automation is also expected to reduce staff costs.
From the charts above we can see that the rent + staff cost of SCB HK is roughly the same as BOC HK, but the business metrics like deposits and personal loans is lower than BOC HK. This may give SCB HK extra incentive to step into the virtual banking space, which could bring higher efficiency to its retail banking business.
Insurance
Compare PingAn vs ZhongAn
PingAn’s insurance business (570.52B RMB in Life and Health GWP, 247.44B RMB Property and Casualty premium income) is much larger than ZhongAn (11.26B RMB GWP).
PingAn
Life insurance and Retail banking are the major retail customer base of PingAn. Also note that its customer base has pretty high penetration on internet and mobile apps.
For its insurance business, PingAn is aggressively expanding its Technology channels (30% YoY growth) for sourcing new business, while traditional channels like Agent and Bancassurance are shrinking.
That said, Agent is still the predominant channel (83.5% of all new business) when it comes to new business development.
ZhongAn
Over 100% Gross Written Premiums (GWP) growth in Health Insurance (152%), Bond Insurance(177%), Credit Insurance (184%) and Motor Insurance (1371%).
There was also a significant improvement in the loss ratio of the Auto business, dropping from 145.5% in 2017 to 58.9% in 2018.
loss ratio, defined as net claims incurred as a percentage of net premiums earned; and channel fees, defined as handling charges directly related to written premiums as well as commissions, technical service fees and other channel related fees, as percentages of net written premiums
One thing to notice is that the low loss ratio % and high channel fees for the Travel sector. The low loss ratio % (9.7%) suggests that most of the premiums earned were not claimed by customers, making this type of insurance potentially a lucrative business line for the company. The problem is that the high channel fees (89.2%), which could be due to partnership with the other parties (e.g. travel agencies, airlines), or expenses on advertisements etc. If ZhongAn manages to lower the channel fee by integrating with the virtual bank arm, this will potentially increase the margin of its Travel insurance business (the GWP of Travel business was 1,460M RMB in 2018).
Some Other facts about ZhongAn
- ZhongAn has a market share of 31% in the internet non-auto insurance market, ranking No. 1 among peer companies across China.
- More than 50% of ZhongAn’s employees are engineers / technicians (i.e. 52.4%, 1,618 people), suggesting they care technology a lot. And their way of applying technology in their business is quite interesting — see the slides Experience of New Technology for Online Insurance (e.g. Automatically Insured Accident Insurance, Accident Insurance for Screen Protection of Cellphone).
Retail
These retail groups/conglomerates will potentially have synergy by integrating virtual banking services into their business.
Jardines
Several units under Jardines that may have synergy with virtual bank business.
- Jardine Motors — Sale and service of motor vehicles; integrate virtual banking with Car finance and insurance
- Jardine Lloyd Thompson — Insurance, Reinsurance, Specialty and Employee Benefits
- Dairy Farm — Network of retail outlet; integrate virtual banking with payment service
Ctrip
Potential integration with the virtual bank via travel insurance to transportation ticketing and accommodation reservation etc. Ctrip’s core business revenue was 31.1B RMB in 2018.
We believe that we are the largest consolidator of hotel accommodations in China in terms of the number of room nights booked. As of December 31, 2018, we had secured room supply relationships with approximately 1.4 million hotels in China and abroad, which covered a broad range of hotels in terms of prices and geographical locations.
New World Development
One possible synergy between New World Development (Adrian Cheng, via investment arm) and the virtual bank it backs is its mortgage loans, which was 4.46B HKD in 2018. But it is possible that it is purely Adrian Cheng’s personal investment as it is not really done via New World Development.
Closing
These are obviously not everything about the backers! For example further research could be made on the backers from financial services, digital finance, and technology.
If you enjoy reading this article, you may want to check out my previous article Virtual banking race in Hong Kong — from hiring perspective. Thank you!
References
BOC HK Annual Report 2018
ICBC Asia Annual Report 2018
Standard Charter HK Annual Report 2018
Ping An Insurance (Group) Company of China Annual Report 2018
ZhongAn Online P & C Insurance Annual Report 2018
Jardines Annual Report 2018
Ctrip Form-20F 2018
New World Development Annual Report 2018
https://www.bochk.com/dam/bochk/desktop/top/aboutus/pressrelease2/2019/20190327_02_Press_Release_SC.pdfhttp://iis.aastocks.com/20190327/003438897-0.PDF
https://www.cyberport.hk/files/5cb04caebc1c9397057834/20190412_press_eng.pdf
https://www.welab.co/en/press-release/welab-granted-a-virtual-banking-license
https://www.tencent.com/en-us/articles/16000841557392795.pdf
